(a)Jack consumes widgets (X) and a composite good (Y) whose price is always 1. In period 1 the widget company sets the price of widgets at $10 per unit and Jack's equilibrium basket consists of 20 widgets and 100 units of the composite good. In period 2 the widget company revises its pricing plan, charging $15 per unit for the first 10 units and $5 per unit for each additional unit. Using budget constraints and indifference curves,

(i)Illustrate Jack's equilibrium (on the same diagram)in period 1 and 2.(6)

(ii)In which period is Jack better off and why?(4)

(b)Al consumes a positive amount of Widgets (X) and woozles (Y). In an attempt to encourage the consumption of woozles, the Government subsidizes woozlesand its price drops drastically. As a result Al stops buying widgets.

(i)What can you say about Al's Marginal Rate of Substitution at his utility-maximizing equilibrium before and after the subsidy?(4)

(ii)Illustrate the income and substitution effects of this decrease in the price of woozles.(6)

This is the whole question